Fresh Gillard threat to states on health funding

Dan Harrison, Kate Hagan

Prime Minister Julia Gillard has told state and territory leaders she is prepared to ''rearrange'' their budgets for them by making payments directly to hospitals and deducting the money from other grants if they ''play politics'' with health.

A day after reversing a $107 million cut to Victorian hospitals, Ms Gillard said she would bypass other state governments that displayed the same ''conduct'' as Victoria, which has campaigned publicly against the cuts, announced by the Commonwealth late last year on the basis of a downward revision of population estimates.

Ms Gillard blamed the closure of about 350 beds and the cancellation of thousands of operations in the state on ''a grand act of incompetence'' by Victorian Premier Ted Baillieu.

She said the Commonwealth would pay hospitals directly what they had lost and recover the money from other Commonwealth funding set aside for the state.

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As NSW and Queensland demanded the cuts to their funding also be reversed, Ms Gillard warned: ''If we see any other premier playing this kind of politics . . . there is a very clear message: we will go around you, we will deal direct with hospitals and local hospital networks, and we will rearrange your budget for you.

''We will rearrange state budgets by cutting them back in other areas. We are not going to allow state governments to play politics with health.''

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It is believed the decision to bypass the Baillieu government by providing the funding directly to health service providers is being used by the federal government as a ''test case'' to assess whether the model might be applied more broadly, and in other jurisdictions.

A senior federal source said the move could be viewed as a ''partial takeover'' by the Commonwealth. The Gillard government has also leapt on suggestions by Mr Baillieu that the move could be unconstitutional, given the likelihood that a High Court challenge could lead to significant delays distributing the funds.

NSW Health Minister Jillian Skinner said the direct funding to Victorian local hospitals networks was ''a very strange deal''.

''I'm absolutely stunned by it,'' she said. ''It goes against entirely not only the COAG agreement but the spirit of the agreement that specifically states that the states and territories are the system managers and that funding is to go through the states and territories for disbursement to the hospitals.''

Mrs Skinner added: ''It doesn't relieve the federal government of its responsibilities to restore funding to all states and territories.

''There is no doubt that Victoria was hurting but so will NSW be if this money is not restored.''

The cut to the NSW health budget this financial year was worth $139 million but has been absorbed by the state's treasury rather than passed on to individual hospitals, as in Victoria.

Queensland Health Minister Lawrence Springborg demanded the return of $103 million to his state this financial year, which he said equalled thousands of operations.

''From Queensland's perspective, we can't understand why Victoria is special and Queensland's got the same issue,'' he told a Senate inquiry into health funding cuts, held in Melbourne.

Speaking in Melbourne on Thursday, federal Health Minister Tanya Plibersek said there would be no need to allocate further rescue funding in the new financial year, and the federal government would continue to use the new, lower estimates of Victoria's population to calculate payments.

She said any other funding boost around Australia for this financial year would go directly to hospitals and come from funding otherwise earmarked for those states.